When payment for goods or services is made by cheque, it is a conditional payment. The condition is that the cheque will be paid on presentation. This has some important practical consequences. Suppose that A buys goods from B and pays by cheque. The cheque is stolen from B by C who forges B's endorsement and cashes it through the banking system in circumstances where the bank is protected and A's account is debited. B cannot demand further payment from A, because the condition for payment was not breached since the cheque was, in fact, paid upon presentation.
There are other serious consequences of accepting payment by cheque, particularly in private sales of motor vehicles. For example, if A pays B by cheque for a motor car, the basic rule would be that ownership of the car passes to A when the cheque is handed over. If A acts fraudulently and the cheque is not paid, B may be unable to recover the motor car if A has sold it to someone else in the meantime.
There are some practical advantages and disadvantages in paying by cheque. If the goods are defective, it may be of considerable negotiating advantage for a person to be able to stop the payment on te cheque and then return the goods, rather than trying to argue for a refund. However, if a customer stops the cheque, all the seller need do to take legal action is show that the cheque was dishonoured.
Passing valueless cheques
Under the Summary Offences Act 1953 (SA) [s 39] it is a criminal offence to obtain goods or money by using a cheque that is not paid on presentation, unless the person who offered the cheque proves that there were reasonable grounds for believing that the cheque would be paid on presentation and there was no intention to defraud.
A 'bank cheque' is a cheque which is drawn by a bank on itself. They are traditionally used as a safe and secure form of payment, since it is highly unusual for a bank to dishonour its own cheque. There are several reasons why a bank might dishonour its own cheque including:
- it has been reported lost or stolen
- the cheque is a forgery or counterfeit
- a court has ordered it not be paid [Lyritzis v WBC (1994) ATPR 41-360]
The only practical protection when offered a bank cheque is to ring the bank which appears to have issued the cheque and seek verification that the cheque has in fact been issued by the bank. This may be done by telephone, but notes of the time and other details of the conversation should be made. It is also important to get the name of the bank employee spoken to. This simple precaution should prevent any loss from a bad cheque. The person handing over the cheque should not object since it is in the interests of all parties that confidence be maintained. Indeed, if the person handing over the cheque protests about the procedure, it is even more important that it be carried through.
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